Ethics Rules and Corporate Gifts

Submitted by Paul D. Thacker on December 29, 2006 - 4:00am

University of Connecticut officials believe they are missing out on millions of dollars in corporate contributions, and the Connecticut State University system says that companies are deciding to forgo substantial gifts.

The cause? Not an economic downturn, but new state ethics rules designed to limit the ability of corporations to curry favor with state officials. University representatives say that the changes will hurt students and researchers, but a state ethics official says that it will cut out the ability for companies to curry favor and win contracts.

“People are reluctant to give,” said David Vance, vice president of finance and controls at the University of Connecticut Foundation[1]. “The last thing they want to do is make a gift and then end up on the front page of a newspaper for an ethics violation.”

“We’re just a watchdog doing its job,” said Ben Bycel, executive director of Connecticut’s Office of State Ethics[2], an independent agency that is financed by the state.

The controversy centers on laws passed in 2005 that limit gifts from state contractors. In April 2006, a citizens’ board with the Office of State Ethics interpreted the law in ways that will not allow businesses that contract with the state to make donations to state institutions, critics say.

“It was that ruling that impacted our ability with regard to our foundation,” said Jill Ferraiolo, the assistant vice chancellor for governmental affairs with the Connecticut State University system. Ferraiolo said that Western Connecticut State University lost out on a $40,000 pledge from a construction contractor, and a local health care company will not be donating any equipment to the nursing program at Southern Connecticut State University.

Meanwhile, Vance said that UConn’s foundation is way behind on corporate gifts. Companies normally donate about $9 million annually to the foundation. But halfway through the new fiscal year, company contributions have reached only $1.4 million; the shortfall comes in funds that normally pays for scholarships and funds research.

Vance said that the university is also missing out on other types of corporate support such as donated equipment. “These kinds of gifts are also prohibited, and that has also had an impact.”

Bycel acknowledged that some people are confused about his agency’s rulings, and that the uncertainty might be scaring off donors. For instance, a company that does business with the state’s Department of Transportation might believe that this prohibits it from making a gift to UConn. But Bycel said that this is not the case. Only companies that do business directly with a university would be prohibited from making gifts to it.

He said that lawyers with his office have tried to meet with officials from UConn’s foundation to help them figure out which companies are forbidden from making university gifts, but the foundation does not want to release its donor list. One plausible reason for why the foundation has seen a shortfall in donations, Bycel said, is because companies that have contracts with the university do not want to break the law by giving gifts.

“These are not mysterious ties,” Bycel said, adding that he was once a general counsel to a large university. “The point of business is to gain access and influence. And it is our job to level the playing field.”

When questioned, Ferraiolo acknowledged that the contractor that pulled its pledge from Western Connecticut State University does business with that campus. She added that she expects state legislators to make changes to the law when it meets in January.

“Everyone is hamstrung right now,” said Kevin Hennessy, a staff lawyer with the Connecticut Business and Industry Association[3]. Hennessy said that companies like to contribute to educational causes, and he expects that legislators will try to correct the problem next month. Despite Bycel's assertions to the contrary, he said he believes that any state contractor is inhibited from making donations to the university, even if it does not have contracts with the institution, he said.

Bycel said that his office has submitted some proposed changes to the legislature, but he is not certain how things will transpire next month. He said that his office is only concerned with contractors that are working directly with a university, and that he does not want to stop other companies from helping out. “Are we trying to stop kids from getting scholarships? Of course not,” he said.

But the changes he has proposed will still block campus contractors from trying to curry favor by making gifts to the university. “The law, as we proposed it, won’t make them happy,” he said.